Capita Plc · LSE:CPI
Capita — H1 2017 Earnings Presentation
48 slides from Capita's earnings presentation, Sep 21, 2017
Slide 1: Results for the half year ended 30 June 2017
Results for the half year ended 30 June 2017 Capita plc 21 September 2017
Slide 2: Agenda
Agenda Introduction Ian Powell, Chairman Overview & financial results Nick Greatorex, Interim CEO and Group Finance Director Business development Chris Sellers, Group Business Development Director Summary & outlook Nick Greatorex, Interim CEO and Group Finance Director 2 | H1 2017 financial results
Slide 3: Overview & Financial Results
Overview & Financial Results Nick Greatorex Interim CEO and Group Finance Director 3 | H1 2017 financialresults
Slide 4: Overview of H1 2017
Overview of H1 2017 Executed plans to reposition the Group • New, simplified organisation structure implemented • Disposals of Capita Asset Services and specialist recruitment • Driving through benefits of restructuring programme – cost initiatives progressed Early adopted IFRS 15 from 1 January 201
Slide 5: Capita investment proposition: fundamental attractions
Capita investment proposition: fundamental attractions Capita is the leader in a large High visibility: 87% of revenue is addressable market expected to contracted grow at 3% per annum to 2019* Our scale, unique breadth of Cash generative, with good capabilities and track record of margins and retur
Slide 6: IFRS 15 re-cap – early adoption of IFRS 15
IFRS 15 re-cap – early adoption of IFRS 15 • Adoption in line with our strategy of simplifying the business and improving transparency in a consistent, prudent and sustainable way • Significant, complex and far-reaching accounting standard with impact on long-term contracts and software licences • M
Slide 7: IFRS 15 re-cap – key points
IFRS 15 re-cap – key points No impact on: Key impacts: Revenue more evenly distributed over the life of Lifetime profitability of contracts contracts and active software licences – timing of profits re-profiled Cash flow of contracts Potentially lower profits or losses in early years on contracts wh
Slide 8: Underlying income statement
Underlying income statement • Underlying revenue decreased by 3.1% £m £m 6 months 6 months Change to 30 June to 30 June • Underlying profit before tax of £195m 2017* 2016** • Interim dividend 11.10p, in line with 2016 Revenue 2,066 2,131 (3.1%) Operating profit 228 166 37.6% • Excludes Capita Asset
Slide 9: Revenue
Revenue • 1.0% like for like growth from continuing underlying £m £m 6 months 6 months activities Change to 30 June to 30 June 2017 2016 • 0.5% underlying organic decrease Total reported revenue 2,127 2,156 (1.3)% • Excludes Capita Asset Services – a discontinued 2016 disposals (8) operation 2017 di
Slide 10: Overall Group underlying revenue split
Overall Group underlying revenue split* • Revenue split – based on IFRS 15 definitions: H1 2017 • 71% long term contractual – 2 years or longer 13% Transactional • 16% short term contractual – less than 2 years 16% Contractual < 2 years • 13% transactional Contractual > 2 years 71% • Considerable va
Slide 11: Revenue from continuing underlying activities H1 16 to H1 17
1,500 1,600 1,700 1,800 1,900 2,000 2,200 2,100 HY 2016 revenue 2,046 H1 16 13 BBC TVL 11 | H1 2017 financial results DWP PIP 10 13 Co-op Civil Service Learning (20) Central gov contracts (20) Network Solutions 19 14 Other ITS Real Estate & Infrast (26) Remediation Services (18) Employee Solutions (
Slide 12: Underlying operating profit H1 16 to H1 17
0 50 100 150 200 250 300 H1 2016 Underlying 166 operating profit H1 16 29 BBC TVL 12 | H1 2017 financial results 7 DWP PIP Co-op 20 TfL 14 15 PCSE 16 DIO Central Gov contracts (4) Network Solutions 15 15 Other ITS (6) Real Estate & Infra (7) Remediation Services (4) Employee Solutions DSS (9) Underl
Slide 13: Underlying operating profit bridge to reported operating profit
Underlying operating profit bridge to reported operating profit 300 Exceptional items Recurring items (53) 200 (11) (37) (64) £m 228 100 (1) 63 0 Underlying operating Capita Asset Services Other business exit Capita Asset Services Amortisation Acquisitions Reported operating profit separation and ex
Slide 14: Restructuring costs summary
Restructuring costs summary • Cost initiatives remain on track to deliver As at H1 2017* 2016 Q4 H1 2017 H2 2017 2018-19 cumulative benefit of £57m by end 2018 £m P&L charge 57.2 - - - • Provision expected to be near 100% utilised by end 2017, with spend concentrated in H2 Cash (9.6) (13.7) (33.2) (
Slide 15: Underlying operating margin
Underlying operating margin Focus on improving operating margin through: New wins Robust sales process Offshoring and investment Cost efficiency through strategic relocation of operations Finance transformation Long-term transformation programme in place Procurement New system development to maximis
Slide 16: Revised segmental reporting format
Revised segmental reporting format* Central costs no longer allocated across divisions and now reported separately Revenue Operating Profit Operating Margin H1 2017 H1 2016 H1 2017 H1 2016 (£m) (£m) Change (£m) (£m) Change H1 2017 H1 2016 Change Private Sector Partnerships 791 739 7.0% 82 47 74.5% 1
Slide 17: Private Sector Partnerships
Private Sector Partnerships • Commencement of mobilcom-debitel and Tesco HY17 HY16 Movement Mobile contracts • Increase in BBC TV Licence revenue and profit after Revenue £791m £739m 7.0% contract modification in 2016 Profit £82m £47m 74.5% • Improved profitability following Co-op negotiations in 20
Slide 18: Public Services Partnerships
Public Services Partnerships • Revenue fall due to central government contracts and lower trading in real estate, partially offset by HY17 HY16 Movement DWP PIP • One-off benefit in DIO owing to contract Revenue £539m £586m (8.1)% modification Profit £46m £4m 940.9% • PCSE transformation spend lower
Slide 19: Professional Services
Professional Services • Loss of part of Civil Service Learning contract HY17 HY16 Movement • Improved performance in RPP and FERA Revenue £251m £261m (3.9)% Profit £51m £41m 25.5% Margin 20.4% 15.6% 4.8% Revenue split Outlook • One-off property commercialisation in H2 2016 will not repeat Transactio
Slide 20: Digital & Software Solutions
Digital & Software Solutions • Profit lower as a result of two major long-term HY17 HY16 Movement active software licences ending in H2 2016 • Increased go-lives on AMT-Sybex and secure Revenue £207m £209m (0.9)% software active licence implementations Profit £59m £67m (13.1)% Margin 28.3% 32.3% (4.
Slide 21: IT Services
IT Services • Acutest and Trustmarque acquisitions HY17 HY16 Movement • Higher level of project completion in network solutions Revenue £274m £241m 13.6% • Significant improvement in performance due to Profit £46m £15m 202.0% restructuring of management team and operating model Margin 16.9% 6.3% 10.
Slide 22: ROCE bridge
ROCE bridge 0.2% (0.1)% 0.2% 2.0% 15.2% 12.9% FY 2016 Organic profit Working capital Capex less depreciation Acquisitions & disposals H1 2017 22 | H1 2017 financial results
Slide 23: Capital allocation
Capital allocation Reduced Working capital leverage Disciplined Capital expenditure post-Asset capital Acquisitions Services allocation disposal Dividends Investment grade credit rating Future investment flexibility 23 | H1 2017 financial results
Slide 24: Underlying cash flow statement
Underlying cash flow statement • Capital expenditure reduced by £30m to £50m • Underlying free cash flow of £179m • Net debt decreased by £193m £m 6 months to £m 6 months to 30 £m 6 months to £m 6 months to Cash Flow Financed by 30 June 2017 June 2016 30 June 2017 30 June 2016 Operating profit* 228
Slide 25: Working capital extract
Working capital extract* June 2017 December 2016 Accrued Deferred Contract Accrued Deferred Contract Income Income Fulfilment Total Income Income Fulfilment Total (£m) (£m) Assets (£m) (£m) (£m) (£m) Assets (£m) (£m) Private Sector Partnerships 56 (767) 126 (585) 60 (762) 129 (573) Public Services P
Slide 26: Capital expenditure
Capital expenditure Disciplined approach to capital expenditure H1 2016 • Contain and refocus on value for money H1 2017 80 • Must meet Group investment hurdle criteria 50 • Continued focus on software products 31 24 23 25 • Discretionary spend in 2017 major programmes: 16 11 • SIMS 8 £m 30% 46% 39%
Slide 27: Contract fulfilment assets - additions
Contract fulfilment assets - additions • New asset category created by IFRS 15 H1 2016 • Software CFA represents the spend on live H1 2017 implementations as the progress towards go-live. • Contract CFA represents spend on transformations projects currently ongoing. Key projects include: 40 • PCSE 3
Slide 28: Disposals and acquisitions
Disposals and acquisitions • Capita Asset Services disposed for £888m gross of £72m transaction expenses, expected to complete in Q4 • Specialist recruitment disposal completed • Two small bolt-on acquisitions in software testing and travel 28 | HY 2017 financial results
Slide 29: Balance sheet gearing
Balance sheet gearing • £193m net debt cash reduction At 31 Dec Cash Non-cash At 30 Jun 2016 movements movements 2017 • Net debt 2.9 times EBITDA Net debt £m £m £m £m Bond debt* 1,596 (35) 7 1,568 • Bond debt maturity • £90m in October 2017 Cash in bank (566) (36) 3 (599) • £25m in July 2018 • £128m
Slide 30: Interest and debt profile
Interest and debt profile • Net debt benefitting from free cash flow 2015 2016 H1 2017 • Higher coupon fixed rate interest rate swaps Interest rate % 2.9 3.3 2.7 terminated in H1 2017 leading to lower H1 2017 interest cost US$ PPN 1,312 1,340 1,300 • 2017 interest cost expectation (including £9m € P
Slide 31: Revenue booked in 2017
Revenue booked in 2017 • 0.9% growth from acquisitions FY (£m) % • Attrition on major contracts (2.1%) Acquisitions 2016 24 0.6% • Attrition offset by 4.6% growth from contracts won 2017 14 0.3% • Net organic growth 2.5% Acquired total 38 0.9% • Still facing headwinds in some trading businesses Orga
Slide 32: IFRS 16 - Leases
IFRS 16 - Leases • Adoption from 1 January 2019 • Ongoing detailed review of lease contracts • Expect significant lease liabilities and right of use lease assets to be recognised on the balance sheet • Expect the profile of income and recognition in relation to these leases to change • There is no i
Slide 33: Pension liability
Pension liability • Scheme liability of £1.5bn • Deficit moved from £345m at December 2016 to £381m owing to discount rate moving from 2.8% to 2.6% • Half year income statement charge increase of £6m, with full year 2017 expected to increase by £12m • The latest valuation commenced in April 2017, wi
Slide 34: 2017 financial guidance
2017 financial guidance Net long term contract growth booked 2.5% Revenue Headwinds in a number of trading businesses H2 pre-tax profit expected to increase modestly compared to H1 Trading performance Cumulative benefits of performance improvement initiatives Partially offset by some trading busines
Slide 35: Business Development
Business Development Chris Sellers Group Business Development Director 35 | H1 2017 financialresults
Slide 36: Agenda
Agenda 1 Our structure to match current buying behaviour 2 Buying behaviour: major deals and campaigns 3 Campaign progress: local government 4 Customer management: market and approach 5 Overview of our pipeline 36 | H1 2017 financial results
Slide 37: Our structure to match current buying behaviour
Our structure to match current buying behaviour Major Outsourcing Deals Group Business Development Additional Campaigns • Technology enabled partnerships • Team, evolved, increased, agile • High value, replicable solutions • JV or transfer to Capita • Closely aligned to and feeding market facing div
Slide 38: Buying behaviour: major deals and campaigns
Buying behaviour: major deals and campaigns Division Sector Major deals: Campaigns: propensity to propensity to buy (Mar 2017) buy (Mar 2017) Public sector Local • Significant opportunities for campaigns in local partnerships government government Public sector Health partnerships Public sector Cent
Slide 39: Buying behaviours remain largely the same but with some improvements
Buying behaviours remain largely the same but with some improvements Division Sector Major deals: Campaigns: Campaigns: propensity to propensity to propensity to buy buy (Mar 2017) buy (Sept 2017) Public sector Local Central government partnerships government • Total spend through Crown Commercial S
Slide 40: Campaign progress: local government
Campaign progress: local government £45m wins YTD; £206m new opportunities Digital & software Regeneration Procurement People development & support *Campaigns have a conversion rate of >50% 40 | H1 2017 financialresults
Slide 41: Campaign progress: local government criteria for success
Campaign progress: local government criteria for success 1. Deep understanding of clients’ challenges Key success criteria 3. Multiple clients 2. Trusted to deliver within the market tangible results 41 | H1 2017 financialresults
Slide 42: Customer management: market and approach
Customer management: market and approach Market growing by 4% UK Market Share - Top 10 Split by service type, £m CAGR 017-21, % 4% 4,429 2% 2% 2% 3,751 13% 2% 2% 3% Customer care Customer care 3% 3% Technical support 5% 8% Technical support 4% Revenue generation 10% Revenue generation Capita Teleper
Slide 43: Customer management: market and approach
Customer management: market and approach Overall deal flow in the UK (Sep 2015 - Aug 2017) Wins to date £116m Decisions in next 6 £500m 350 months Pipeline (>£25m) £1,062m 300 Prospects £995m £25m 250 16 deals 38 deals 200 £1,418m £329m 150 £m 100 50 0 The Pensions Regulator Rossendale Borough Thame
Slide 44: Using technology to deliver customer excellence
Using technology to deliver customer excellence 44 | H1 2017 financialresults
Slide 45: What does this mean for our pipeline?
What does this mean for our pipeline? Pipeline Today’s pipeline Pipeline and prospects (As announced March 2017) £3.8bn (26 deals) in >£25m deals £3.1bn (28 deals) in >£25m deals Private Sector Partnerships Average term: 7 yrs Average term: 5.5 yrs Public Services Annualised value: £550m Annualised
Slide 46: Driving Capita's future growth
Driving Capita’s future growth Adapting to buying behaviours of our markets Continuing to build on major deal success Focusing on win rate Investing in markets where we are strong Driving additional growth through campaigns 46 | H1 2017 financialresults 70,000 people contributing to the development
Slide 47: Summary and outlook
Summary and outlook Nick Greatorex Interim CEO and Group Finance Director 47 | H1 2017 financialresults
Slide 48: Summary and outlook
Summary and outlook 2017 actions completed or in progress Capita repositioned • New organisation structure implemented • A simpler business, with a clear strategy focussed • Rebuilding confidence and trust on BPM • Disposals announced. CAS to complete in H2 • Large growing addressable market • Cost